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Why this star fund manager just bought Flight Centre Travel Group Ltd shares

What: Listed investment company Bki Investment Co Ltd (ASX: BKI) – which has historic links to Brickworks Limited (ASX: BKW) – has announced in its latest quarterly report to shareholders, and it has taken a position in global travel agency Flight Centre Travel Group Ltd (ASX: FLT).

So What: In the quarterly report, Bki’s portfolio manager, Mr Will Culbert, outlined in detail his investment case for Flight Centre.

Here are Mr Culbert’s key points:

  • Skin in the game – Flight Centre is run by highly experienced long-term managers with significant shareholdings
  • Offshore earnings exposure – Around 50% of Flight Centre’s revenues are derived from outside Australia
  • Growth potential – In the past Flight Centre has successfully invested in new brands and new markets. This strategy continues today and Mr Culbert sees this as laying the foundation for growth
  • Dividend – The group trades on a reasonable fully franked yield of approximately 4.5% which should be sustainable
  • Strong balance sheet – The group is net cash to the tune of around $430 million with the potential for capital management initiatives in the future
  • Attractive pricing – With the share price down around 9% year to date, the stock currently trades on a price-to-earnings ratio of 14 times

Now What: Investors who chose to build their own portfolio – as opposed to outsourcing the investment process to professional fund managers – ultimately need to make up their own mind on the investment merits of a particular stock.

Keeping an eye on the buying and selling decisions of top performing fund managers can be a great starting point for identifying stocks, however, further research and analysis is required.

With regards to Flight Centre, the “bull” case which Mr Culbert has put forward makes sense. The company has more growth opportunities than many other similarly-sized ASX-listed businesses, the quality of the business is above average, yet it trades on a below average multiple.

Many followers of Flight Centre however side with the “bear” case. This point of view includes concern over the group’s reliance of bricks-and-mortar operations and the possible threat that online competition poses to its retail store network.

Investors considering buying this stock will need to weigh up and consider the positive case, versus the negative one.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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